Cognizant Agency Audit Program FAQ's
Re: Indirect Cost Rate
1. Is a firm required to submit the ICR package during the transition/phase-in period of July 1, 2008 to December 31, 2008?
2. Are subcontractors required to complete and submit an ICR package?
3. Does a consultant have to fill out the “Consultant Questionnaire”?
4.Does the $1 million threshold apply to a consultant who has contracts with both Caltrans and local government agencies?
5. Why does the CPA firm have to fill out the “CPA Questionnaire”?
6. What standards and regulations should the CPA follow in conducting the audit of a Consultant’s indirect cost rate(s)?
7. If a consultant has a cognizant agency-approved ICR, must the consultant submit a complete ICR package?
8. How long is a Consultant’s cognizant agency-approved indirect cost rate (ICR) valid?
9. The financial information provided for the ICR package can be deemed confidential. How will Caltrans ensure confidentiality
10. What are engineering and design-related services?
11. Are environmental services considered to be A&E services?
12. How will contracts with option years be handled?
13. How can I get more information about the Cognizant Agency Audit Program?
14. If an A&E consulting firm is based outside of California, does the firm have to submit a complete indirect cost rate (ICR) package?
15. If a consultant intends to compete for a government agency (Caltrans or local) advertised A&E consultant contract that has a contract value of less than $1 million and has no other current contracts with that same government agency, does the consultant have to submit an indirect cost rate (ICR) package?
16. What minimum qualifications must the Certified Public Accountant (CPA) have to conduct the indirect cost rate (ICR) audit?
1. Q. Is a firm required to submit the ICR package during the transition/phase-in period of July 1, 2008 to December 31, 2008?.
A. From July 1, 2008, to December 31, 2008, firms intending to compete for A&E consultant contracts with Caltrans are not required to submit a complete ICR package. However, if a firm has a valid cognizant agency-approved ICR, the firm must submit the approval letter issued by the State DOT other than Caltrans (in a separately sealed envelope) but does not have to submit the CPA ICR audit report, the CPA Questionnaire, or the Letter of Authorization. Beginning January 1, 2009, firms competing for A&E consultant contracts with Caltrans must submit a fully completed ICR package or a valid cognizant agency-approved ICR or those firms will be deemed non-responsive and eliminated from consideration for that particular contract.
We encourage firms to engage independent CPAs to conduct audits of their firm's ICR(s) and for each firm to complete an ICR package during the transition/phase-in period of July 1, 2008, to December 31, 2008. Doing so would most likely expedite the process for the next engineering/design-related contracts for which those firms intend to compete, particularly for those contracts advertised after January 1, 2009.
2. Q. Are subcontractors required to complete and submit an ICR package?
A. No. The Federal regulation under 23 CFR 172 applies only to prime contractors. However, if a subcontractor was/is a prime contractor for another contract and received an approved cognizant agency ICR, the subcontractor must use its approved ICR (assuming the approval period, i.e., 12 months from the date of the CPA’s audit report, has not expired) for its contract as a subcontractor
3. Q. Does a consultant have to fill out the “Consultant Questionnaire”?
A. Yes. Each consultant competing for a consultant contract must completely fill out the Consultant Questionnaire except those with valid ICR’s approved by Caltrans. The “Consultant Questionnaire” provides the consultant a means to assess if its financial management system and accounting practices are capable of complying with Federal and State requirements. A completed questionnaire provides Caltrans Audits & Investigations (A&I) with an overview of the consultant’s financial management system, accounting practices, and internal controls. Based on the responses to the “Consultant Questionnaire” and the accompanying explanatory/supplementary and supporting documents (if applicable), A&I can determine if further review of the consultant and/or the CPA is necessary. The questionnaire facilitates an expedient contracting process, given the Federal cognizant agency audit requirements under 23 CFR 172.
4. Q. Does the $1 million threshold apply to a consultant who has contracts with both Caltrans and local government agencies?
A. No. In California, the threshold is determined by each individual contracting government agency. Therefore, if a consultant competes for an advertised Caltrans A&E contract of $1 Million or more OR the aggregate of the advertised contract PLUS current contracts with Caltrans total $1 million or more, the consultant must submit an indirect cost rate package (ICR) or a cognizant-agency approved ICR letter of concurrence/approval, a completed Consultant Questionnaire and supporting schedules, and the consultant’s “Disclosures and Information” in a separately sealed envelope along with its SOQ (also in a separately sealed envelope). The same determination process applies to each local government agency.
The $1 million threshold is not applied across government agencies within California.
5. Q. Why does the CPA firm have to fill out the “CPA Questionnaire”?
A. The “CPA Questionnaire” must be completed by the CPA who performs the audit of the ICR. The purpose of the “CPA Questionnaire” is to ensure that the CPA’s audit included the critical areas of the consultant’s financial management system and to determine if the audit was conducted in compliance with Generally Accepted Government Auditing Standards (GAGAS), Generally Accepted Accounting Principles (GAAP), and the latest Federal Acquisition Regulations (FAR). Based on the responses to the “CPA Questionnaire” and the accompanying explanatory/supplementary documents (if applicable), Caltrans Audits & Investigations can determine if further review of the CPA and/or the consultant is necessary. The questionnaire facilitates an expedient contracting process, given the Federal cognizant agency audit requirements under 23 CFR 172.
6. Q. What standards and regulations should the CPA follow in conducting the audit of a Consultant’s indirect cost rate(s)?
A. The standards and regulations applicable to an audit of the indirect cost rate(s) are:
- Government Audit Standards (also referred to as Generally Accepted Government Auditing Standards or the Yellow Book) by the Government Accountability Office (GAO)
- Generally Accepted Accounting Principles (GAAP)
- Federal Acquisition Regulations (FAR), Code of Federal Regulations (CFR) 48, Chapter 1, Part 31 (“Contract Cost Principles and Procedures”; citation: 48 CFR 31)
- 27 CFR 172 (“Administration of Engineering and Design Related Service Contracts”)
- American Association of State Highway and Transportation Officials (AASHTO) Audit Guide
7. Q. If a consultant has a cognizant agency-approved ICR, must the consultant submit a complete ICR package?
A. If a consultant has an approved ICR by Caltrans, the consultant must only submit the approval letter issued by Caltrans. However, if the consultant has an cognizant agency-approved ICR by a State DOT other than Caltrans, the consultant must submit the Home State DOT’s approval letter, a completed Consultant Questionnaire and supporting schedules, and the consultant’s Disclosures and Information but does not have to submit the CPA ICR audit report, the CPA Questionnaire, or the Letter of Authorization
If the approved ICR has expired (e.g., the CPA ICR audit report, approved by the Home State DOT with a letter of concurrence/approval is over 12 months old), the consultant must obtain a new, approved ICR and submit the valid letter of concurrence/approval issued by its Home State DOT.
8. Q. How long is a Consultant’s cognizant agency-approved indirect cost rate (ICR) valid?
A. Cognizant agency-approved ICRs are valid for twelve (12) months from the date of the CPA’s ICR audit report.
9. Q. The financial information provided for the ICR package can be deemed confidential. How will Caltrans ensure confidentiality?
A. Consultants competing for a consultant contract must put their ICR packages in sealed envelopes, separate from the SOQ packages. Caltrans only requires one (1) copy of the ICR package which is to be submitted, in a sealed envelope to Caltrans HQ – DPAC Contract Analyst and not to the panel members who will evaluate the SOQs. The ICR packages are sent to Caltrans Audits & Investigations for review. For those firms who are not selected for/awarded a contract, the ICR package will be sent back to those firms.
10. Q. What are engineering and design-related services?
A. Per 23 U.S.C. 112(b)(2)(A), engineering and design-related services include program management, construction management, feasibility studies, preliminary engineering, design, engineering, surveying mapping, and architectural related services.
11. Q. Are environmental services considered to be A&E services?
A. A&E services include environmental services as defined under California Government Code §4525(f):
"Environmental services" means those services performed in connection with project development and permit processing in order to comply with federal and state environmental laws.
Environmental services include:
- Environmental Impact Reports
- Environmental Studies
- Biology
- Biological Monitoring
- Cultural Studies
- Cultural Resources
- Generalist
- Hazardous Waste Studies, Remediation Design, and Monitoring
- Paleontology
NOTE: Environmental services qualify as A&E services if the Statement of Work clearly indicates that the work is required to comply with the National Environmental Policy Act (NEPA) and the California Environmental Quality Act (CEQA).
12. Q. How will contracts with option years be handled?
A. Caltrans does not engage in contracts for Architectural & Engineering (A&E) consultant services that include provisions for option years.
13. Q. How can I get more information about the Cognizant Agency Audit Program?
A. For a better understanding of the Cognizant Agency Audit Program please go to the following websites:
23 CFR 172 (the Code of Federal Regulations – Administration of Engineering and Design Related Contracts)
http://www.access.gpo.gov/nara/cfr/waisidx_08/23cfr172_08.html
Federal Highway Administration (FHWA): Comments/Responses to 23 CFR 172 Exposure Draft
http://www.transportation.org/sites/audit/docs/Uniform%20Audit%20&%20Accounting%20Guide.pdf
FHWA: Administration of Engineering and Design Related Service Contracts – Questions and Answers
http://www.fhwa.dot.gov/programadmin/172qa.cfm
48 CFR 31 (the Federal Acquisition Regulations – Contract Cost Principles and Procedures)
http://www.access.gpo.gov/nara/cfr/waisidx_07/48cfr31_07.html
For a better understanding of the government (Federal and State) audit standards and guidelines to be used when conducting an audit of an engineering or design-related firm’s indirect cost rate, please go to the following websites:
Government Auditing Standards (GAS)
http://www.gao.gov/govaud/ybk01.htm
American Association of State Highway and Transportation Officials (AASHTO) Audit Guide
http://www.transportation.org/sites/audit/docs/Uniform%20Audit%20&%20Accounting%20Guide.pdf
14. Q. If an A&E consulting firm is based outside of California, does the firm have to submit a complete indirect cost rate (ICR) package?
A. If a firm is based outside of California and the firm’s Home State DOT has approved the firm’s ICR, the firm does not have to submit a complete ICR package. However, the firm must submit its Home State DOT's letter of concurrence/approval that specifies the approved ICR rate(s), a completed Consultant Questionnaire and supporting schedules, and the consultants Disclosures and Information (all in a separately sealed envelope) along with the firm’s SOQ (also in a separately sealed envelope). .
15. Q. If a consultant intends to compete for a government agency (Caltrans or local) advertised A&E consultant contract that has a contract value of less than $1 million and has no other current contracts with that same government agency, does the consultant have to submit an indirect cost rate (ICR) package?
A. At this time, the answer is “No.” However, Caltrans is re-evaluating its processes to ensure that consultants are in compliance with 48 CFR 31, and that the consultants have adequate job cost accounting systems and sufficient internal controls.
16. Q. What minimum qualifications must the Certified Public Accountant (CPA) have to conduct the indirect cost rate (ICR) audit?
A. The CPA conducting the ICR audit must have a current California CPA license and must be able to substantiate that the CPA conducted the ICR audit in compliance with Generally Accepted Government Auditing Standards (http://www.gao.gov/govaud/ybk01.htm).